Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2010. / Cataloged from PDF version of thesis. / Includes bibliographical references. / This thesis studies the economics of local labor markets. There are three chapters in the thesis, and each chapter studies how economic outcomes are affected by local labor market conditions. The first chapter studies the incidence of local labor demand shocks. This chapter starts from the observation that low-skill workers are comparatively immobile. When labor demand slumps in a city, college-educated workers tend to relocate whereas non college workers are disproportionately likely to remain to face declining wages and employment. A standard explanation of these facts is that mobility is more costly for low-skill workers. This chapter proposes and tests an alternative explanation, which is that the incidence of adverse shocks is borne in large part by (falling) real estate rental prices and (rising) social transfers. These factors reduce the real cost of living differentially for low-income workers and thus compensate them, in part or in full, for declining labor demand. I develop a spatial equilibrium model which, appropriately parameterized, identifies both the magnitude of unobserved mobility costs by skill and the shape of the local housing supply curve. Nonlinear reduced form estimates using U.S. Census data document that positive labor demand shocks increase population more than negative shocks reduce population, that this asymmetry is larger for lows kill workers, and that such an asymmetry is absent for wages, housing values, and rental prices. Estimates of the full model using a nonlinear, simultaneous equations GMM estimator suggest that (1) the asymmetric population response is primarily accounted for by an asymmetric housing supply curve, (2) the differential migration response by skill is primarily accounted for by transfer payments, and (3) estimated mobility costs are at most modest and are comparable for high-skill and low-skill workers, suggesting that the primary explanation for the comparative immobility of low-skilled workers is not higher mobility costs per se, but rather a lower incidence of adverse labor demand shocks. The second chapter, written jointly with Daron Acemoglu and Amy Finkelstein, studies how local area health spending responds to permanent changes in local area income. This chapter is motivated by the fact that health expenditures as a share of GDP have more than tripled over the last half century, and a common conjecture is that this is primarily a consequence of rising real per capita income, which more than doubled over the same period. We investigate this hypothesis empirically by instrumenting for local area income with time-series variation in global oil prices between 1970 and 1990 interacted with cross-sectional variation in the oil reserves across different areas of the Southern United States. This strategy enables us to capture both the partial equilibrium and the local general equilibrium effects of an increase in income on health expenditures. Our central estimate is an income elasticity of 0.7, with an elasticity of 1.1 as the upper end of the 95 percent confidence interval. Point estimates from alternative specifications fall on both sides of our central estimate, but are almost always less than 1. We also present evidence suggesting that there are unlikely to be substantial national or global general equilibrium effects of rising income on health spending, for example through induced innovation. Our overall reading of the evidence is that rising income is unlikely to be a major driver of the rising health share of GDP. The third chapter, written jointly with Kory Kroft, studies theoretically and empirically how optimal Unemployment Insurance (UI) benefits vary with local labor market conditions. Theoretically, we derive the relationship between the moral hazard cost of UI and the unemployment rate in a standard search model. The model motivates our empirical strategy which tests whether the effect of UI benefits on unemployment durations varies with the local unemployment rate. In our preferred specification, a one standard deviation increase in the local unemployment rate reduces the magnitude of the duration elasticity by 32%. Using this estimate to calibrate the optimal level of UI benefits, we find that a one standard deviation increase in the unemployment rate leads to a 6.4 percentage point increase in the optimal replacement rate. JEL classification: J61, 110, J65. / by Matthew J. Notowidigdo. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2012. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 183-197). / This thesis examines three topics. The first chapter, entitled "Persistent Effects of Peru's Mining Mita" utilizes regression discontinuity to examine the long-run impacts of the mita, an extensive forced mining labor system in effect in Peru and Bolivia between 1573 and 1812. Results indicate that a mita effect lowers household consumption by around 25% and increases the prevalence of stunted growth in children by around six percentage points in subjected districts today. Using data from the Spanish Empire and Peruvian Republic to trace channels of institutional persistence, I show that the mita's influence has persisted through its impacts on land tenure and public goods provision. Mita districts historically had fewer large landowners and lower educational attainment. Today, they are less integrated into road networks, and their residents are substantially more likely to be subsistence farmers. The second chapter, entitled "Trafficking Networks and the Mexican Drug War" examines how drug traffickers' economic objectives influence the direct and spillover effects of Mexican policy towards the drug trade. Drug trade-related violence has escalated dramatically in Mexico during the past five years, claiming over 40,000 lives. By exploiting variation from close mayoral elections and a network model of drug trafficking, the study develops three sets of results. First, regression discontinuity estimates show that drug trade-related violence in a municipality increases substantially after the close election of a mayor from the conservative National Action Party (PAN), which has spearheaded the war on drug trafficking. This violence consists primarily of individuals involved in the drug trade killing each other. The empirical evidence suggests that the violence reflects rival traffickers' attempts to wrest control of territories after crackdowns initiated by PAN mayors have challenged the incumbent criminals. Second, the study predicts the diversion of drug traffic following close PAN victories by estimating a model of equilibrium routes for trafficking drugs across the Mexican road network to the U.S. When drug traffic is diverted to other municipalities, drug trade-related violence in these municipalities increases. Moreover, female labor force participation and informal sector wages fall, corroborating qualitative evidence that traffickers extort informal sector producers. Finally, the study uses the trafficking model and estimated spillover effects to examine the allocation of law enforcement resources. Overall, the results demonstrate how traffickers' economic objectives and constraints imposed by the routes network affect the policy outcomes of the Mexican Drug War. The third chapter, entitled "Insurgency and Long-Run Development: Lessons from the Mexican Revolution" exploits within-state variation in drought severity to identify how insurgency during the Mexican Revolution, a major early 20th century armed conflict, impacted subsequent government policies and long-run economic development. Using a novel municipal-level dataset on revolutionary insurgency, the study documents that municipalities experiencing severe drought just prior to the Revolution were substantially more likely to have insurgent activity than municipalities where drought was less severe. Many insurgents demanded land reform, and following the Revolution, Mexico redistributed over half of its surface area in the form of ejidos: farms comprised of individual and communal plots that were granted to a group of petitioners. Rights to ejido plots were non-transferable, renting plots was prohibited, and many decisions about the use of ejido lands had to be countersigned by politicians. Instrumental variables estimates show that municipalities with revolutionary insurgency had 22 percentage points more of their surface area redistributed as ejidos. Today, insurgent municipalities are 20 percentage points more agricultural and 6 percentage points less industrial. Incomes in insurgent municipalities are lower and alternations between political parties for the mayorship have been substantially less common. Overall, the results support the hypothesis that land reform, while successful at placating insurgent regions, stymied long-run economic development. / by Melissa Dell. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2010. / Cataloged from PDF version of thesis. / Includes bibliographical references. / The first essay empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information; these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual changes in fundamentals (news) from those due to temporary errors in the private sector's estimates of these fundamentals (noise). Using a simple model where the consumption random walk hypothesis holds exactly, we address some basic methodological issues and take a first pass at the data. First, we show that if the econometrician has no informational advantage over the agents in the model, structural VARs cannot be used to identify news and noise shocks. Next, we develop a structural Maximum Likelihood approach which allows us to identify the model's parameters and to evaluate the role of news and noise shocks. Applied to postwar U.S. data, this approach suggests that noise shocks play an important role in short-run fluctuations. The second essay experimentally examines whether looking at other people's pricing decisions is a type of heuristic, a decision rule that people over-apply even when it is not applicable. such as in the case of clearly private value goods. We find evidence that this is indeed the case. individual valuation of a purely subjective experience under full information, elicited using incentive compatible mechanism, is highly influenced by values of others. As the third essay shows, this result can shed light on price rigidities. Inspired by the experimental results of the second essay, the third essay develops a model of slow macroeconomic adjustment to monetary shocks. The model exploits the idea that buyers are imperfectly informed about their nominal valuation. I proceed in three steps. First, I develop a mechanism for price rigidities. My mechanism captures the notion that firms are reluctant to increase prices after an increase in demand or costs because it creates a disproportionate adverse reaction among consumers. These reactions arise endogenously for purely informational reasons. The key assumption is that some consumers are better informed than others about monetary shocks. If few consumers are informed, equilibria with nominal rigidity exist. In these equilibria firms do not change prices even though they are arbitrarily well informed, and have no menu costs. Moreover, if the proportion of informed consumers is low enough, these equilibria dominate equilibria with flexible prices. Second, I show that when firms do not change prices they inflict an informational externality on other firms. Consumers buy goods sequentially, one after the other, and change their beliefs about shocks when they see prices change. Therefore, when firms do not change prices, consumers do not learn. This hurts both firms and consumers. Third, I study the dynamic responses of output and inflation to shocks. Because of the informational externality learning is initially slow, the responses are delayed and hump-shaped. The responses are also asymmetric - prices increase faster than they decrease, and therefore negative shocks trigger larger output responses than positive shocks. / by Jean-Paul L'Huillier. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2013. / Cataloged from PDF version of thesis. / Includes bibliographical references (p. 143-149). / This dissertation explores cooperation when formal contracts and legal institutions are imperfect. The first chapter (co-authored with Isaiah Andrews) considers how a principal allocates business among a group of agents to motivate them in the context of a repeated game with imperfect private monitoring. If players are impatient, the optimal relational contract dynamically allocates future business among agents depending on past performance. An optimal allocation rule favors an agent who performs well, even if he later performs poorly. An agent loses favor only if he is unable to produce and his replacement performs well. The principal may allows some relationships to deteriorate into persistent shirking in order to better motivate other agents. We find conditions under which the principal either does or does not benefit by concealing information from the agents. The second chapter proves that approximately Pareto efficient outcomes can be sustained in a broad class of games with imperfect public monitoring and Markov adverse selection when players are patient. Consider a game in which one player's utility evolves according to an irreducible Markov process and actions are imperfectly observed. Then any payoff in the interior of the convex hull of all Pareto efficient and min-max payoffs can be approximated by an equilibrium payoff for sufficiently patient players. The proof of this result is partially constructive and uses an intuitive "quota mechanism" to ensure approximate truth-felling. Under stronger assumptions, the result partially extends to games where one player's private type determines every player's utility. The final chapter explores how firms might invest to facilitate their relationships with one another. Consider a downstream firm who uses relational contracts to motivate multiple suppliers. In an applied model with imperfect private monitoring, this chapter shows that the suppliers might "put the relationship first:" they invest to flexibly produce many of the products required by the downstream firm, rather than cutting costs by specializing. A downstream firm that relies on relational contracts tends to source from fewer suppliers, each of whom can inefficiently manufacture many different products required by that firm. / by Daniel Barron. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1996. / Includes bibliographical references (p. 147-151). / by Marco Ottaviani. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2006. / "June 2006." / Includes bibliographical references (p. 88-94). / This thesis is a collection of three essays on labor economics from a macroeconomic prospective. Chapter 1 discusses imperfect information, self-selection and the market for higher education. It explores how the steady trends in increased tuition costs, college enrollment and returns to education might be related to the quality of college graduates. The model shows that the signaling role of education might be an important, yet largely neglected ingredient in these recent changes. In a special signaling model, workers face the same costs, but can expect different returns from college. Allocation of ability into skill is determined by the equilibrium skill premium. Incorporating a production of higher education, the properties of the college market equilibrium are discussed. A skill biased technical change initially decreases self-selection into college, but the general equilibrium effect can overturn the initial decline, since increased enrollment and rising tuition costs increase selection. Higher initial human capital has an external effect on subsequent investment: all agents increase their schooling investment, and the higher equilibrium tuition costs increase self-selection and the college premium. Chapter 2 is about unemployment insurance and the uninsured. / (cont.) Under Federal-State law workers who quit a job are not entitled to unemployment insurance. How does the existence of the uninsured affect wages and employment? An equilibrium search model is extended to account for two types of unemployed workers. In addition to the unemployed who are currently receiving unemployment benefits and for whom an increase in unemployment benefits reduces the incentive to work, there are also unemployed who are currently not insured. For these, work provides an added value in the form of future eligibility, and an increase in unemployment benefits increases their willingness to work. Incorporating both types into a search model permits solving analytically for the endogenous wage dispersion and insurance rate in the economy. It is shown that in general equilibrium, when firms adjust their job creation margin, the wage dispersion is reduced and the overall effect of benefits can be signed: higher unemployment benefits increase average wages and decrease the vacancy-to-unemployment ratio. Chapter 3 explores the optimal provision of unemployment insurance within a search model. Adding risk aversion to the standard search and matching model allows for an analytic discussion of the optimal provision of unemployment insurance. / (cont.) The government's capacity to insure workers is limited by the market wage setting, which gives workers a share in the employment surplus. When the government provides higher unemployment benefits, the bargained wages increase, and unemployment rises. These equilibrium responses have a negative effect on workers' welfare if workers' bargaining power is above a certain point, which is lower than the matching elasticity. As risk aversion increases, workers' share in the wage bargain is smaller, and thus the equilibrium effects are attenuated. The constrained optimal provision of unemployment benefits is a modification of the Hosios condition for efficient unemployment insurance and highlights the roles of bargaining and risk aversion. The optimal level of insurance increases with risk aversion, with the costs of creating a vacancy and with workers' higher bargaining power. / by Tal Regev. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2006. / Includes bibliographical references (p. 126-128). / This dissertation consists of three essays on the heterogeneous reactions of firms to shocks, with particular empirical applications to the Chilean economy. The first essay presents a model of heterogeneity in an economy with financial constraints. The main issue in the model is to characterize the entrepreneurs and firms that are affected by shocks or policy innovations. The model delivers a dual margin composed of a segment of relatively poorer but more productive entrepreneurs and a segment of richer but less productive entrepreneurs. The main result we present in this essay is that these two margins will react heterogeneously to shocks in economically meaningful ways. The second essay is devoted to the construction of the panel and the econometric use of the FUNDES-SII panel firm database. We use this database to study firm creation, destruction and performance on maps of firms. The main result of this essay is that there does seem to be some empirical evidence of a margin of high productivity, low capital entrepreneurs for the Chilean economy, as predicted in the first essay of the thesis. Finally, we find that among smaller firms leverage seems to be an indicator of financial constraint, while among larger firms it is an indicator of financial access. / (cont.) The third essay is devoted to the construction of the panel and econometric use of the INE-BFL panel worker database to study workplace creation and destruction in Chile. For local interest, the main feature of the chapter is that it is the first time that representative and consistent series of job creation and destruction that is made available for the Chilean economy. The main feature of the chapter, however, is the estimation and characterization of workplace fragility by firm size. We estimate separation, matching and bankruptcy probabilities, and inquire into their sensitivity to the economic cycle. / by Oscar Landerretche. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2008. / Includes bibliographical references. / This thesis consists of three essays that examine investment choices in less developed countries. Chapter 1 examines how the structure of existing microfinance contracts may discourage risky but high-expected return investments. I develop a theory that unifies models of investment choice, informal insurance, and formal financial contracts and test the predictions using a series of experiments with Indian microfinance clients. The experiments confirm that borrowers free-ride on their partners, making risky investments without compensating partners for this risk, and that the addition of peer-monitoring overcompensates, leading to sharp reductions in risk-taking and profitability. However, the theoretical prediction that group lending will crowd out informal insurance is not borne out by experimental evidence. While observed levels of informal insurance fall well short of the constrained Pareto frontier under both individual and joint liability, joint liability increases observed insurance transfers. Equity-like financing overcomes both of these inefficiencies and merits further testing in the field. Chapter 2 investigates the relationship between inflation uncertainty and the investment decisions of small, microfinance-funded firms in the Dominican Republic. Using loanlevel panel data from microfinance borrowers in the Dominican Republic, I find that periods of increased inflation uncertainty were associated with substantially lower investments in fixed assets and reduced business growth. This finding is robust to specifications controlling for other forms of systemic risk and aggregate economic activity, suggesting inflation uncertainty creates potentially large distortions to the investment decisions of poor entrepreneurs. / (cont.) Chapter 3, co-authored with my advisor, Esther Duflo, turns to investment behavior for public goods. This paper proposes and implements a test of local government efficiency by using a policy in India that set aside leadership positions in local governments to members of disadvantaged minority groups. If local governments are efficient, even if they discriminate against minority groups by supplying fewer public goods, they should still supply the public goods that minority groups value most. We find that when leadership positions are reserved for disadvantaged minorities, hamlets in which these minorities live receive a greater allocation of public goods. Moreover, we find suggestive evidence that this increase in public goods in minority hamlets is not proportional to the distribution of goods when the leadership position is unreserved, suggesting that in the absence of reservation, local governments do not efficiently respond to the minority group's preferences. / by Gregory M. Fischer. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1992. / Includes bibliographical references (leaves 150-151). / by Fernando Manuel Ribeiro Branco. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2014. / Cataloged from PDF version of thesis. / Includes bibliographical references. / The first chapter studies how incentives drive adoption by looking at a technology that generates revenue for hospitals: the practice of submitting detailed documentation about patients. After a 2008 reform, hospitals were able to raise their total Medicare revenue over 2% by always specifying a patient's type of heart failure. I find that hospitals only captured around half of this revenue. The key barrier to take-up is a principal agent problem, since doctors supply the valuable information but are not paid for it. Exploiting the fact that many doctors practice at multiple hospitals, I find that four-fifths of the dispersion in adoption reflects differences in the ability of hospitals to extract documentation from physicians. Hospital adoption is also robustly correlated with the ability to generate survival for heart attack patients and the use of inexpensive survival-raising standards of care. My results suggest that agency conflicts may drive disparities in health care performance more generally. The second chapter (co-authored with Amitabh Chandra, Amy Finkelstein, and Chad Syverson) challenges the conventional wisdom in health economics that large differences in average productivity across hospitals are the result of idiosyncratic, institutional features of the healthcare sector which dull the role of market forces. Strikingly, we find that productivity dispersion in heart attack treatment across hospitals is, if anything, smaller than in narrowly defined manufacturing industries such as ready-mixed concrete. We also find evidence against the conventional wisdom that the healthcare sector does not operate like an industry subject to standard market forces. In particular, we find that hospitals that are more productive at treating heart attacks have higher market shares at a point in time and are more likely to expand over time. These facts suggest that the healthcare sector may have more in common with "traditional" sectors than is often assumed. The third chapter explores whether hospitals change their treatment decisions when they are paid more for certain treatment approaches. I exploit a Medicare reform that altered payment rates depending on whether patients were relatively healthy or sick. Looking at three treatment approaches for lung cancer patients, I demonstrate economically significant own-price elasticities and right-signed cross-price elasticities - though these estimates sometimes lack statistical power and should be interpreted with caution due to concerns about endogeneity. These findings indicate that payment reforms, including movements toward capitation and away from fee-for-service, may have large effects on the intensity of care that patients receive in the hospital. / by Adam Jon Sacarny. / Ph. D.